VNM announced its H1 2021 results, including revenue of VND28.9tn (USD1.3bn; -3% YoY) and NPAT-MI of VND5.4tn (USD235mn; -7% YoY). These results imply revenue of VND15.7tn (USD683mn; +1% YoY) and NPAT-MI of VND2.8tn (USD123mn; -8% YoY) in Q2 2021, which achieved 47% and 49% of our respective full-year forecasts. 

- H1 2021 earnings were broadly in line with our expectations as a scale-down in marketing expenses offset slightly weaker-than-expected domestic dairy sales. That said, given the current worse-than-expected COVID-19 outbreaks (the fourth wave) in Vietnam that could dampen consumer spending, there could be downside risk to our current full-year forecasts, pending a fuller review.

- Based on our estimate from parent (separate) financial statements, domestic dairy revenue ex-MCM (Moc Chau Milk – VNM’s indirect subsidiary) dropped 6% YoY in H1 2021, which improved vs a 9% YoY slump in Q1 2021 that was due to the negative impact from Vietnam’s third wave of COVID-19 on consumer demand in late January 2021. 

- Meanwhile, MCM contributed 5% to total revenue in H1 2021. On a standalone basis, MCM’s revenue edged up 3% YoY in H1 2021 as it leveraged VNM’s distribution capabilities while its NPAT surged 29% YoY to VND137bn (USD6mn) as it was backed by higher interest income and elevated GPM thanks to joint procurement with VNM.

- Combined revenue from overseas subsidiaries — including Driftwood (US) and Angkor Milk (Cambodia) — slid 2% YoY in H1 2021 mainly due to the extended closure of schools (Driftwood’s primary sales channel) in the US in Q1 2021. Nevertheless, Driftwood posted double-digit revenue growth YoY in Q2 2021 from a low base as the US gradually reopened schools. Meanwhile, Angkor Milk’s revenue advanced by a low-single-digit YoY in Q2 2021, which was slower than Q1 2021’s double-digit growth as rising COVID-19 infections started to cause economic disruptions in Cambodia.

- Export revenue increased 13% YoY in H1 2021, driven by VNM’s ability to take advantage of COVID-19 disruptions on the operations of other dairy producers in its export markets. We note that most of VNM’s exports are to the Middle East.

- In H1 2021, consolidated GPM contracted by 2.7 ppts to 43.6% due to rising raw material costs such as milk powder and sugar. Per VNM, it has locked in milk powder prices for production through YE2021 with H2 2021’s estimated cost base being lower than H1 2021. Therefore, we expect a GPM improvement in H2 2021, albeit still lower than H2 2020’s levels.

- Consolidated SG&A/revenue compressed by 1.5 ppts YoY to 22.6% in H1 2021 as VNM scaled down its marketing activities amid a soft-demand environment. In H1 2021, advertising expenses slid 3% YoY while promotion expenses slumped 13% YoY.